Do you know how much your Kissimmee Florida rental property is costing you? Every owner, regardless of background, should have some understanding of rental property accounting.
To find success, you need to track the right metrics. With a property manager and accounting software program in place, this is easy.
Even if you decide to delegate accounting to a professional, understanding these key terms will make you a better landlord:
Gross Operating Income
To assess how much income you can make from your rental property, track gross operating income (GOI). The GOI is the amount leftover after factoring in losses, such as vacancies.
To determine this metric, you need to know your potential gross income (PGI) and vacancy losses. PGI is the total income the property could generate without any vacancy issues.
To estimate vacancy losses, you might need to do some predicting. Consider renters who fail to pay rent on time and those who aren't renewing their leases.
Using the information you find, deduct the losses from the potential gross income. This is how you'll determine your gross operating income.
Net Operating Income
Most of your income is going to come from rent payments. Net operating income (NOI) accounts for operating expenses. This is how it differs from the gross operating income.
Calculate all forms of rental income. Rent, monthly fees, application costs, etc. You should keep an accurate income statement each month to make your calculations easier.
Then check your rental property accounting records for expenses, such as property taxes, property management fees, maintenance expenses, etc.
Take your income, deduct the operating expenses, and you'll have your net operating income. This is your profit.
Cash Flow
Cash flow is an important metric to track every month. You can tell how well your Kissimmee, Florida rental is doing with this calculation.
Cash flow is defined as the net cash left every month after expenses have been deducted. However, cash flow typically doesn't include taxes as an expense.
Simply put, cash flow is your rental income minus your expenses. This is an important number in determining how successful your rental is.
A property that has a continuously negative cash flow has a serious problem. Figure out what the underlying issue is. Take action to resolve the problem or consider selling your property.
Some Kissimmee investors rely on cash flow as their primary profit and loss metric. Although simple, it does provide a lot of valuable information.
Struggling With Rental Property Accounting?
Rental property accounting is an important investment factor. Some landlords buy into real estate without a good understanding of accounting. This is where a property management company can help.
Allegiant Management Group aspires to be the leading real estate and property management company for Kissimmee, Florida investors. We provide quality service and peace of mind to all clients.
Our team has accounting experience. We can track financials and report findings to you every month. We use a secure online accounting system that owners can always access. Contact us today to get your accounting system in order.
